Is the war economy, set up by the Kremlin,, is it weakening more than expected? Despite persistent inflation, the Russian Central Bank (BCR) lowered its key rate, two points on Friday. This is its most marked decline since 2022, faced with growing fears of a slowdown in the country’s economy.
The inflection of the BCR is all the more notable since it is a fervent defender of monetary rigor and the maintenance of high rate. What a part of the government rejects. This lowering marks the ascendant taken by the Kremlin, worried to maintain growth and investments for its long -term project of territorial conquests.
« Current inflationary pressures, including underlying pressures (those of the most volatile prices, editor’s note) decrease faster than expected. The growth of domestic demand slows down “, Justified the BCR in a statement announcing its decision.
In other words, the institution agrees to maintain investments and consumption, while the Russian economy is under 18 packets of sanctions which are increasingly aiming to cut the oil and gas revenues from the Kremlin. At the end of June, the EU agreed to lower $ 47.6 a barrel of the Russian oil price set up by the G7.
“The post-2022 artificial rebound is now finished, with a perceptible economic slowdown from the end of 2024 and a contraction expected in early 2025”observed in a note in early July experts from the Bruegel Institute, teachers in particular in kyiv in Ukraine, who underwent the Russian offensive.
The room for maneuver is reduced
In their note, they note that if Russian GDP is still growing, the financial room for maneuver is reduced: the stock of liquidity of the sovereign fund is lower than the early deficit, and dependence on domestic debt increases for lack of foreign investors.
“The civil economy suffers from an investment failure, aggravated by nationalizations, the flight of foreign capital and the lack of interest of new, even Chinese investors”they write.
The BCR is therefore taken between the hammer of an increase in rates, to extinguish inflation and consumption at half mast, and the anvil of investment where money borrowed costs more.
A first turning point
The lowering of the rates is a turning point because the BCR had, conversely, noted its key rate at a very high level, at 21%, last October and maintained it at this level until last month, when it had brought it to 20%.
However, exorbitant interest rates have hit companies hard on a background of labor shortages. Some of the greatest business leaders in the country put pressure on the central bank so that it softens its monetary policy.
However, the regulator provides that interest rates will remain high in 2025, providing for a drop in inflation to its target of 4% by 2026.
“Monetary policy will remain restrictive for a long time,” warned the BCR.
The institution also considered that “The economy continues to return to a balanced growth trajectory”.
Despite Western sanctions targeting it, Russia posted strong economic growth in 2024, mainly thanks to the massive state expenditure on defense, which should further increase by almost 30% in 2025.